Tesla Stock Up 11% in October – Time to Buy TSLA Stock?

Tesla stock is up more than 11% so far in October following the release of upbeat production and delivery figures for the third quarter of its 2021 fiscal year.

The electric vehicle manufacturer led by the controversial Elon Musk is also scheduled to report earnings for this period today after the market closes.

Can this earnings report keep lifting the price of Tesla (TSLA) stock in the following weeks? In this article, I will be taking a look at what the market is expecting from the company to outline plausible post-earnings scenarios.

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Tesla Stock – Technical Analysis

Earlier this month we highlighted the possibility that Tesla stock could jump to the $850 level in the weeks that followed the release of its Q3 production and deliveries report and that target was hit this week.

Now, as we are about to enter the usually volatile post-earnings period, the stock is heavily extended from its short-term moving averages as the price closed nearly 9% above the 20-day simple moving average.

Meanwhile, the Relative Strength Index (RSI) has stepped on overbought territory already and is standing near its January highs – back when the stock climbed to all-time highs. On the other hand, the MACD has also been steadily climbing with the oscillator having already crossed above the signal accompanied by steadily rising positive histogram readings.

Options expiring this week are pricing a mild 3.4% in the stock price following the release of this earnings report which seems rather low at first glance but fairly consistent with Tesla’s recent post-earnings fluctuations.

Tesla Stock – Fundamental Analysis

According to estimates compiled by Seeking Alpha, revenues for the electric vehicle maker are expected to land at $13.7 billion but there is a wide gap between the lowest and highest ranges as they stand between $11.7 and $16 billion.

Meanwhile, analysts are expecting to see the firm’s adjusted earnings per share more than doubling compared to the same period a year ago at $1.61 per share with the lowest estimate standing at $0.98 and the highest at $2.08 per share.

Since Tesla reports its deliveries and production figures weeks before its earnings release, analysts are usually quite accurate in predicting where sales will stand for the automotive company.

However, other factors could weigh on Tesla’s bottom-line profitability. For example, the company purchased $1.5 billion in Bitcoin (BTC) during the first semester of the year. Considering the coin’s recent jump near all-time highs, Tesla’s earnings may be positively affected by non-cash upward adjustments to the fair value of its digital assets.

On the other hand, Tesla’s EBITDA has been evolving positively in the past three years, moving from $1.6 billion to $4.3 billion at a compounded annual growth rate of 64%. Meanwhile, the firm’s LTM EBITDA figure is currently standing at $5.75 billion.

Using Koyfin’s estimated enterprise value of $852 billion for the firm, this results in a trailing EV-to-EBITDA ratio of 148 for the firm. This is quite a stretched valuation metric but the number is much smaller when considering the firm’s forecasted EBITDA figures. In this regard, the forward EV/EBITDA multiple currently stands at 64.5x.

Considering the rate at which Tesla has grown its bottom-line results in the past, if it continues to perform in a similar way in the future, the current valuation might be, to some extent, justified.

Moreover, the firm’s total addressable market remains quite large considering that Tesla does not have a global presence yet and its vehicles are still fairly expensive. Once Tesla drives its prices lower – a long-standing goal of the management team – its sales volume could surge and, with them, the firm’s profitability on the back of economies of scale.

All things considered, Tesla’s valuation at the moment seems fair. Therefore, the downside risk is rather high and investors should keep that in mind as the latest uptrend could reverse upon tagging the prior all-time high.

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